2 SUMMARY about downside risks to the growth outlook International Developments. Foreign economic and rising trade tensions between the United growth stepped down significantly last year States and China. As a result, Treasury yields from the brisk pace in 2017. Aggregate growth and risky asset prices declined substantially in the advanced foreign economies slowed between early October and late December markedly, especially in the euro area, and the midst of heightened volatility, although several latin American economies continued those moves partially retraced early this year. to underperform. The pace of economic On balance since July, the expected path of the activity in China slowed noticeably in the federal funds rate over the next several years second half of 2018. Inflation pressures in shifted down, long-term Treasury yields and major advanced foreign economies rema mortgage rates moved lower, broad measures subdued, prompting central banks to maintain of U.S. equity prices increased somewhat, accommodative monetary policies. and spreads of yields on corporate bonds over those on comparable-maturity Treasury Financial conditions abroad tightened in the securities widened modestly Credit to large second half of 2018, in part reflecting political nonfinancial firms remained solid in the second uncertainty in Europe and Latin America, half of 2018: corporate bond issuance slowed trade policy developments in the United States considerably toward the end of the year but and its trading partners, as well as concerns has rebounded since then. Despite increases about moderating global growth. Although in interest rates for consumer loans, consumer financial conditions abroad improved in recent credit expanded at a solid pace, and financing weeks, alongside those in the United States, on conditions for consumers largely remain balance since July 2018, global equity prices supportive of growth in household spending were lower, sovereign yields in many economies The foreign exchange value of the U.S. dollar declined, and sovereign credit spreads in the strengthened slightly against the currencies of European periphery and the most vulnerable the U.s. economy's trading partners emerging market economies increased somewhat Market-implied paths of policy rates in advanced foreign economies generally Financial stability. The U.S. financial system edged down remains substantially more resilient than in the decade preceding the financial crisis. Pressures associated with asset valuations Monetary Policy eased compared with July 2018, particularly Interest rate policy. As the labor market in the equity, corporate bond, and leverage continued to strengthen and economic loan markets. Regulatory capital and liquidity activity expanded at a strong rate, the FOMC ratios of key financial institutions, includin increased the target range for the federal large banks, are at historically high levels funds rate gradually over the second half of Funding risks in the financial system are 2018. Specifically, the FOMC decided to raise low relative to the period leading up to the the federal funds rate in September and in crisis. Borrowing by households has risen December, bringing it to the current range of roughly in line with household incomes and 2/4 to 2/ percent is concentrated among prime borrowers. While debt owed by businesses is high and In December, against the backdrop of credit standards--especially within segments increased concerns about global growth of the loan market focused on lower-rated or trade tensions, and volatility in financial unrated firms--deteriorated in the second half markets, the Committee indicated it would of 2018. issuance of these loans has slowed monitor global economic and financial2 SUMMARy about downside risks to the growth outlook and rising trade tensions between the United States and China. As a result, Treasury yields and risky asset prices declined substantially between early October and late December in the midst of heightened volatility, although those moves partially retraced early this year. On balance since July, the expected path of the federal funds rate over the next several years shifted down, long-term Treasury yields and mortgage rates moved lower, broad measures of U.S. equity prices increased somewhat, and spreads of yields on corporate bonds over those on comparable-maturity Treasury securities widened modestly. Credit to large nonfinancial firms remained solid in the second half of 2018; corporate bond issuance slowed considerably toward the end of the year but has rebounded since then. Despite increases in interest rates for consumer loans, consumer credit expanded at a solid pace, and financing conditions for consumers largely remain supportive of growth in household spending. The foreign exchange value of the U.S. dollar strengthened slightly against the currencies of the U.S. economy’s trading partners. Financial stability. The U.S. financial system remains substantially more resilient than in the decade preceding the financial crisis. Pressures associated with asset valuations eased compared with July 2018, particularly in the equity, corporate bond, and leveraged loan markets. Regulatory capital and liquidity ratios of key financial institutions, including large banks, are at historically high levels. Funding risks in the financial system are low relative to the period leading up to the crisis. Borrowing by households has risen roughly in line with household incomes and is concentrated among prime borrowers. While debt owed by businesses is high and credit standards—especially within segments of the loan market focused on lower-rated or unrated firms—deteriorated in the second half of 2018, issuance of these loans has slowed more recently. International Developments. Foreign economic growth stepped down significantly last year from the brisk pace in 2017. Aggregate growth in the advanced foreign economies slowed markedly, especially in the euro area, and several Latin American economies continued to underperform. The pace of economic activity in China slowed noticeably in the second half of 2018. Inflation pressures in major advanced foreign economies remain subdued, prompting central banks to maintain accommodative monetary policies. Financial conditions abroad tightened in the second half of 2018, in part reflecting political uncertainty in Europe and Latin America, trade policy developments in the United States and its trading partners, as well as concerns about moderating global growth. Although financial conditions abroad improved in recent weeks, alongside those in the United States, on balance since July 2018, global equity prices were lower, sovereign yields in many economies declined, and sovereign credit spreads in the European periphery and the most vulnerable emerging market economies increased somewhat. Market-implied paths of policy rates in advanced foreign economies generally edged down. Monetary Policy Interest rate policy. As the labor market continued to strengthen and economic activity expanded at a strong rate, the FOMC increased the target range for the federal funds rate gradually over the second half of 2018. Specifically, the FOMC decided to raise the federal funds rate in September and in December, bringing it to the current range of 2¼ to 2½ percent. In December, against the backdrop of increased concerns about global growth, trade tensions, and volatility in financial markets, the Committee indicated it would monitor global economic and financial developments and assess their implications for